Colombian Update : What's New (s) : The Weekender

THE WEEKENDER

So into the final quarter of 2018 we go and this is fast starting to feel like a lost year for Colombia - we spent Q1 awaiting the Congress elections, Q2 awaiting and suffering through the two rounds of the Presidential election, then waiting a further two months for Duque to take office and now after 50 days of the new administration we are still waiting to see how the next four years will look - Duque will be hard pressed to achieve much over the next 92 days amid early criticism of his term. TAXES President Duque gave an interview this weekend with regards to the proposed tax reform just a few day after it will reportedly be presented to Congress - there have been various leaked versions and animated social network debates and Duque was also playing his cards relatively close to his chest.

• Those earning over COP50mn ($17,000) per month were specifically mentioned as a group who do not contribute enough - a new tax band perhaps ?

• He appears to want to actually lower VAT whilst expanding the list of products which can be levied - at the same time the idea, which has been tossed around already, is to compensate those who most need it - as stated before such schemes are invaluable however they have a long history in Colombia of failure as Government bureaucracy gets in the way.

• On the other side of the balance sheet Duque wants to create permanent savings when it comes to expenditure. This will be very carefully checked amid reports of cutbacks in peace process expenditure and an increase in defence spending.

Hopefully the bill will arrive in Congress this week and as mentioned previously - what happened to expanding the income tax base which would surely be the most efficient and just method of increasing revenues ? CENTRAL BANK As expected rates were left at 4.25% with the main factors being taken into consideration growth and inflation but there some other points of importance raised :

• Continued uncertainty over the speed of economic growth even though Q2 was in line with expectations and Q3 should be better. They remain at 2.7% for FY2018 although utilization rates in the economy remain below capacity - committee chairman Echavarria though mentioned he is potentially looking above that number as well as faster expansion in 2019.

• August inflation was again subdued with no major effect from the weaker Peso and the major issues being within the unregulated sector.

• External factors have altered significantly but mention was made of 'certain' emerging markets which are impacting the economic environment.

• In response to a potential tightening in the flexible IMF credit line from 2020 the committee announced they would be looking to accumulate international reserves by intervening in the forex market in order to create stability. The measures are similar to what they have done previously and they feel that 3000 for the Peso is a just level for intervention. The amounts will be in tranches of USD400mn per month and there is no limit in terms of how long the program will continue.

• Responding to a question on oil prices FinMin Carrasquilla estimates for every $1 increment in prices the fiscal effect for Colombia is between USD133mn to USD166mn per year.

• Venezuela was mentioned in the Q&A after Duque mentioned that the migration issue could impact by 0.5% annual GDP however the committee side-stepped the issue directing the questioner to the Government.

Overall no surprises and the decision to increase reserves and intervene in the forex market as a result of the increase in US rates seems a logically move especially if credit lines are to get tighter.

UNEMPLOYMENT Whilst a headline number for any economy, unemployment in Colombia has become a relatively dull data-point which is of course good news.

• The national figure stood at 9.2% with a 160k increase in the numbers of those working - to put that in context for the past three years in August that number has stood at 9.1%, 9% & 9.1% (chronological order) - stable I think we would agree.

• Moving to the Urban number it came in at 9.1% which is well below the 10% of August 2017 although those without work rose actually rose 10k with the difference being caused by 350k people who have effectively been re-categorized as not being available for work.

Perhaps the key here though is what constitutes a job and that has become a grey area and the struggle must continue for work with dignity. GREY CEMENT Whilst it is clearly too soon to announce that we have a change of tendency the latest cement numbers for August were much more encouraging than we have seen for much of 2018. Production rose 5.3% to 1,089,300 whilst dispatches also increased 2.7% to 1,061,300 - these numbers versus YTD declines of 0.9% & 1.3% respectively . The construction sector has been a big disappointment over the past two years however fingers will be crossed than August could be a point of departure.